Germany’s Monopolies Commission calls for end of energy crisis price subsidies

Germany should phase out its subsidy scheme to cap electricity and gas prices, introduced during the energy crisis, by the end of 2023, said the country’s Monopolies Commission in a report on energy. “If there is a need for support after the planned expiry of the gas price brake in December 2023, direct transfer payments to households in need are better suited than interventions in price formation,” said the commission. Price interventions distorted scarcity signals and were also wrong from a distributional perspective, as high-income households also benefited from them. Germany currently plans to extend the electricity and gas price subsidies beyond the current end-of-year deadline until March 2024, a government source told news agency Reuters. The European Commission would need to give the green light under state aid rules. It is currently examining the measure, reports Reuters. The government, however, plans to abolish a sales tax cut for gas and district heating it introduced as part of last year's relief measures at the beginning of 2024, the source said, amid more stabilised prices and a tighter federal budget.

In July, economy minister Robert Habeck already proposed to extend the support scheme, but a decision has not been made public. Consumer protection association vzbv and the energy industry association BDEW last week called for “rapid clarification” to avoid a repeat of the “difficult and hectic” situation when the scheme was first introduced. The government had been criticised for poor regulatory work and bad communication surrounding the programme. Germany had introduced gas and electricity “price breaks” as part of its 200 billion euro “defence shield” package to protect households and businesses against soaring energy prices during the crisis, which were applied throughout 2023.

The Monopolies Commission also recommends further diversifying gas deliveries to Germany to ensure future supply security, but cautions that the environmental impact from liquefication and transport of natural gas had to be taken into account. To increase competition on the German household gas market, the commission proposes information campaigns to inform customers of the possibilities to change their providers, and a reform to the system of “basic suppliers” (Grundversorger), which are the dominant and default suppliers at the local level. The commission also proposes to set up a competitively managed capacity market for electricity to ensure enough supply even at times of little wind and sunshine.